The Rainmaker Cometh

Professor PPLI’s Tanned Face

 Part 3

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 Our next series of articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI to the Rescue.  

Professor PPLI has arrived to educate our advisor on what PPLI can accomplish for this frustrated client. We continue our analogy of rain, and cast Professor PPLI in the role of the rainmaker, which the Cambridge English Dictionary defines as “someone who makes a lot of money for a company or who helps someone or something to succeed.” This is an apt description of Professor PPLI.  As you will find out, Professor PPLI has a studious approach to the tax savings and tax compliance benefits of PPLI, (Private Placement Life Insurance).

It is not raining in the third panel of the Concept Map which includes a palm tree. In this article, we will explore how the rain exits and how “PPLI can stop the rain.” Frequently wind can accompany rain, but it also can blow it away.

Before we detail how “PPLI can stop the rain.” Please enjoy a memorable passage from Charles Dickens on the wind from his novel Martin Chuzzlewit. Think of this wind as the same wind that blew the rain away.  This rain that so disturbed the client’s assets in frame two of our Concept Map.

“An evening wind uprose too, and the slighter branches cracked and rattled as they moved, in skeleton dances, to its moaning music. The withering leaves no longer quiet, hurried to and fro in search of shelter from its chill pursuit; the labourer unyoked his horses, and with head bent down, trudged briskly home beside them; and from the cottage windows lights began to glance and wink upon the darkening fields.

Then the village forge came out in all its bright importance. The lusty bellows roared Ha ha! to the clear fire, which roared in turn, and bade the shining sparks dance gayly to the merry clinking of the hammers on the anvil.

Out upon the angry wind! how from sighing, it began to bluster round the merry forge, banging at the wicket, and grumbling in the chimney, as if it bullied the jolly bellows for doing anything to order. And what an impotent swaggerer it was too, for all its noise; for if it had any influence on that hoarse companion, it was but to make him roar his cheerful song the louder, and by consequence to make the fire burn the brighter, and the sparks to dance more gayly yet; at length, they whizzed so madly round and round, that it was too much for such a surly wind to bear; so off it flew with a howl giving the old sign before the ale-house door such a cuff as it went, that the Blue Dragon was more rampant than usual ever afterwards, and indeed, before Christmas, reared clean out of its crazy frame.

It was small tyranny for a respectable wind to go wreaking its vengeance on such poor creatures as the fallen leaves, but this wind happening to come up with a great heap of them just after venting its humour on the insulted Dragon, did so disperse and scatter them that they fled away, pell-mell, some here, some there, rolling over each other, whirling round and round upon their thin edges, taking frantic flights into the air, and playing all manner of extraordinary gambols in the extremity of their distress.

Nor was this enough for its malicious fury; for not content with driving them abroad, it charged small parties of them and hunted them into the wheel wright’s saw-pit, and below the planks and timbers in the yard, and, scattering the sawdust in the air, it looked for them underneath, and when it did meet with any, whew! how it drove them on and followed at their heels!

The scared leaves only flew the faster for all this, and a giddy chase it was; for they got into unfrequented places, where there was no outlet, and where their pursuer kept them eddying round and round at his pleasure; and they crept under the eaves of houses, and clung tightly to the sides of hay-ricks, like bats; and tore in at open chamber windows, and cowered close to hedges; and, in short, went anywhere for safety.”

Now contrast this chaotic and disruptive wind to the placid palm tree next to Professor PPLI in panel three of our Concept Map.  Here is a description of palm trees from Wikipedia.

“Palms are among the best known and most extensively cultivated plant families. They have been important to humans throughout much of history. Many common products and foods are derived from palms. In contemporary times, palms are also widely used in landscaping, making them one of the most economically important plants. In many historical cultures, because of their importance as food, palms were symbols for such ideas as victory, peace, and fertility. For inhabitants of cooler climates today, palms symbolize the tropics and vacations.”

In January and February when walking the sometimes icy New York City streets, you are apt to encounter the sun tanned face or two on the crowded sidewalks. It is difficult not to have a pang of jealousy. You know that this lucky person has just returned from a pleasant Caribbean island where palm trees abound, and the bitter cold winter wind is not felt. At this time in the Caribbean, the temperatures are usually ideal–not too hot or too cold. This balance reminds us of the six principles of Expanded Worldwide Planning (EWP), and how these six principles together with PPLI achieve such outstanding asset structuring results.

In the STEP Journal, Simon Gorbutt TEP, Director of Wealth Structuring Solutions at Lombard International Assurance, demonstrates how the six principles of EWP solve many common issues for wealthy clients.  (Note in this article that the term “investment-linked life insurance” is used for PPLI.)

“Bill Gates once said that ‘with great wealth comes great responsibility’. Gates was referring to philanthropy, but, for many wealthy clients, the responsibility they feel is twofold: to their communities, but also to their ultimate beneficiaries, to ensure that wealth is not unnecessarily eroded before it reaches them. Wealthy clients cite succession and inheritance issues as their greatest concern in terms of wealth creation and preservation in the coming years.1 In an age of political turmoil and where globalisation and digitalisation make all manner of personal and professional change swift, ensuring the continuity of one’s legacy can be challenging, as can finding a single vehicle that delivers the flexibility and longevity clients require. However, life insurance may be that vehicle.”

Preservation

Mobile lifestyles are fast becoming the norm: a third of wealthy clients hold a second passport or nationality, 22 percent plan to buy another home in a foreign country in the next year and 41 per cent send their children overseas for education.2 However, every connection with a new country brings a risk that existing wealth structures will be rendered ineffective. A mainstay of planning in one jurisdiction, such as an excluded property trust for a UK resident non-domiciliary, may not survive elsewhere: on a move by the settlor or beneficiary to France, the trust attracts reporting obligations and, potentially, tax. Spain and other countries that have not ratified the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition may disregard it entirely. And the issue is by no means exclusively European: acquisition of US taxpayer status by a non-US resident can require a client to contend with two tax regimes simultaneously, and investment options may be constrained – e.g. by punitive tax and reporting associated with passive foreign investment companies (PFICs). While there is likely no panacea, investment-linked life insurance can go a long way towards alleviating these concerns.

Importantly, life insurance is not a uniquely civil- or common-law creation. As such, its treatment in law and tax is reasonably uniform, and a well-structured insurance policy will be immune to a move between civil- and common-law jurisdictions. Whether unchanged or with subtle amendments, it can continue to defer tax on linked investments across borders and even in the hands of dual or multi-tax residents. Further, policy assets are owned by the insurer, rather than the policyholder – a distinction that grants the policyholder exposure to investments, such as PFICs, that might otherwise be taxed unfavourably. Similarly, policy investment gains may be protected on emigration, given that, in some countries (e.g. Spain and France), life insurance is not subject to exit tax. In the meantime, the policyholder retains access to their preferred investment managers, appointed by the insurer.

Transition

Over time, life can be complicated not only by travel, but also through the gradual dispersal of family, wealth and other interests – not to mention death, separation and remarriage, and the extended families that can follow. When the time comes for assets to pass to the next generation, these intricacies can frustrate intentions. At death, a matrimonial property regime may apply and should be dealt with first. If time has been spent in various locations, assets are widely distributed or the residence and domicile of a client no longer match, there is scope for more than one succession regime to apply. Some jurisdictions recognise the concept of a deceased’s estate, while elsewhere succession is direct. Others apply forced-heirship rules, and then there is the prospect of double taxation. While the landscape has seen some simplification, e.g. with the EU Succession Regulation (the Regulation)3 and enhanced European cooperation in matrimonial property matters,4 it can be hard to ensure assets reach the right hands.

One of the attractive features of life insurance is the possibility to designate beneficiaries to whom some or all policy proceeds are paid directly when the contract ends. Amounts transferred in this way are generally excluded from the estate of the deceased and are therefore not subject to probate. In some cases, such as in Sweden, a beneficiary can automatically become the new policyholder when the holder dies. At European level, life insurance is a notable exclusion from the scope of the Regulation.5 This is not to say that a life policy in force at the holder’s death cannot be subject to the Regulation, but it provides comfort that payments to beneficiaries will be made immediately, rather than being gathered in and distributed with the broader estate. In this context, it is also significant that, regardless of the number and location of a policy’s linked investments, the policy remains a single asset with a single situs.

There can be little comfort, however, in assets reaching their destination if their value by that time has dissipated. Life insurance is not only subject to a specific legal framework, but also usually sits under a specific head of taxation. As a result, proceeds, on withdrawals or termination, can be taxed more lightly than direct investments and direct inheritance. In France, for example, death proceeds of a policy funded prior to the assured’s 70th birthday are taxed at beneficiary tax rates of 20–31.25 per cent, rather than at succession tax rates of up to 60 per cent. Even where reduced tax rates are unavailable, a life policy might be paired with high death cover from the same provider to meet, rather than mitigate, the liability.

If there is concern that when assets change hands they will be consumed by family disputes or further taxation, bespoke policy terms can reduce this risk: a couple in Spain has the option to take out joint life policies, each spouse naming the other as beneficiary should they be the sole survivor. After an initial term, the sole survivor receives a contractual right to end the policy and take the proceeds. However, the spouses can agree at the outset that receipt of this right will be delayed by a term of years or be invalidated by family disputes or remarriage during this time. Succession tax is not due until the right is received. Crossed policies such as these can smooth the transition of wealth and offer time to plan before a tax bill can arise.

Control

Two of the primary reasons wealthy individuals are concerned about intergenerational wealth transfer are that children will not know how to handle the investments and that they will be irresponsible with the money.6 Having earmarked wealth for the next generation, retaining control over how it is applied can be difficult, particularly overseas. A life policy could solve the conundrum.

In the UK, for example, where beneficiary designations are uncommon, a gift of a foreign life policy to an individual is not chargeable to income or capital gains tax and, for a domiciled (or deemed-domiciled) client, is potentially exempt for inheritance tax purposes. If there is concern that a child or grandchild may be insufficiently mature to handle the value transferred or share the family’s wealth management objectives, policy terms can be tailored before the gift so that, for a period of time chosen by the donor, the policy cannot be brought to an end and withdrawals are prohibited or capped. Elsewhere, beneficiary designations can bestow a form of veto right: although not unique to Belgium, Belgian insurance law provides that an accepting (irrevocable) beneficiary must consent to certain policy transactions, including withdrawals of policy value by the holder. A grandparent who gifts a policy to a child but is irrevocably designated a beneficiary in first rank will possess a veto right during their lifetime over access to the policy value, which value will then inure to the benefit of the child, and ultimately the grandchild as beneficiary in second rank.

Connection

Of course, circumstances may dictate that a combination of solutions or an addition to an existing vehicle is required. In this context, the incorporation of an insurance policy can enhance the efficiency of a larger plan and expand the available investment options. A practical example is the addition of US-style insurance and annuities to foreign non-grantor trusts to limit the effect of the accumulation and distribution rules.7 Similarly, should a beneficial owner spend time in a jurisdiction that disregards a foreign entity, such as a trust, or treats it as transparent (attribution rules in South Africa, or tainted protected settlements in the UK), a life policy held by the entity and compliant in the beneficiary’s country of residence can preserve tax deferral and investment flexibility.

Conclusion

As families and their wealth gradually disperse, and business and personal relationships evolve, even established planning tools can be rendered inefficient or, worse, obsolete. While no structure will weather all eventualities, the flexibility inherent in life insurance and the breadth of its recognition make it an attractive candidate for completing a modern wealth and succession plan.”

  • The Wealth Report 2016, Knight Frank
  • As above, note 1
  • Regulation (EU) No 650/2012
  • Council Regulation (EC) 2016/1103 and, in relation to registered partnerships, Council Regulation (EU) 2016/1104
  • art.1(2)(g), subject to point (i) of art.23(2)
  • As above, note 1
  • See Danilo Santucci, ‘Distribution and Throwback, Part 2’, STEP Journal (Vol25 Iss10), pp.34–35

In our next article we will discuss in more detail how the six principles of EWP in conjunction with PPLI give “magical powers” for structuring assets to achieve exceptional outcomes for clients. Let us know how we can accomplish the same for you!

 

by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

 

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Assets for a ‘Rainy Day’

PPLI Keeps You Dry

 Part 2

 Our next series of articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI to the Rescue.  

“I understand it is raining on my assets.”

This Private Placement Life Insurance (PPLI) client is frustrated and resorts to a seemingly obtuse statement to his advisor. Let us examine his statement more closely. If something valuable would be left out in the rain, it might be spoiled. Indeed, even a PPLI asset can take a turn for the worse.

Perhaps he intended to use the colloquial phrase it is “raining on my parade.” Perhaps English is not this client’s first language, and he is using an idiom of his first language, and translating it literally into English. But whatever is occurring with the rain and his assets, IT IS NOT GOOD. At this point, it is doubtful whether PPLI is of any use to this dissatisfied client.

In the Introduction to her book on idioms, As Right As Rain, Caroline Taggart tells us:

“The Oxford English Dictionary describes it as ‘a group of words established by usage having a meaning not deductible by the meanings of the individual words’ (my italics); other dictionaries emphasize the same point. An idiom, by definition, doesn’t make sense.

Isn’t that fun? Or is it just baffling?

Take the book title, for instance. Why do we say ‘as right as rain’ rather than ‘as right as snow’ or ‘as right as wind’? Or why should rain, or any other climatic feature, be more right than anything else?

Why, to take another example, why do we cry over spilled milk rather than spilled wine or spilled tea? Why is a wild idea pie in the sky or a piece of surprising news a turn up for the books?

A foreigner learning English might well ask these questions and be told, ‘Because it just is, OK?’ That’s because a newcomer to the language has to learn the exact form of the idiom–nine times out of ten, if you translate it from one language to another, it means nothing, and if you alter a single word, it means even less. (To give someone the cold elbow? To bring home the pork? I don’t think so.) But if you want to delve deeper, to find out where these apparently absurd expressions come from in the first place, you might choose to pick up this book. It’s an attempt  to reduce the bafflement, and increase the fun.”

The expression “as right as rain” offers a positive response to this phrase, but the client’s  continence suggests this client is not happy.  Enough of our conjectures. Let us give this client a persona.

We take the liberty of making him Gary Barnett, who “remade Manhattan’s skyline and spurred a supertall-tower boom with One57. In a faltering real estate market, he’s hoping to sell the ultra-rich on Central Park Tower,” according to an article in the Wall Street Journal, “The Man behind Billionaires’ Row Battles to Sell the World’s Tallest Condo,” by Katherine Clarke and Candace Taylor.

Mr. Barnett could use our services, as PPLI can provide excellent structures for real estate. As we have now made him our client, let us learn something about him from the Wall Street Journal article we mentioned previously.

“A self-described “poor boy from the Lower East Side,” Mr. Barnett grew up as Gershon Swiatycki, the son of a Talmudic scholar. His entry into the world of luxury goods came in 1980s, when he met his late wife Evelyn Muller, whose father owned a diamond business. Mr. Barnett traded precious stones in Belgium for over a decade before starting to invest in U.S. real estate.

Arriving at the sales office in a dark suit with black sneakers and a bold, flowered tie that he said is “probably 20 years old,” the 63-year-old developer is an unlikely purveyor of luxury homes. An observant Jew who largely eschews the flashy trappings of the industry, Mr. Barnett lived in Queens until moving recently with his wife and children to the heavily Orthodox suburb of Monsey, N.Y., about an hour’s drive north of the city. (He keeps a one-bedroom unit at One57 to make more time for work.)

Mr. Barnett’s refusal to give up the antiquated flip phone is a source of indulgent eye-rolling from colleagues. He often avoids computers, said a person who has worked with him; instead, his assistant prints out his emails and leaves them on his desk, where he annotates them in what one employee describes as “serial-killer scrawl” for staff to decipher.

He’s “a total nerd,” real-estate agent Nikki Field said affectionately. “He’s not a New York developer personality in any way.”

Other Manhattan developers thought Mr. Barnett was crazy when he started building One57 in 2010, the depths of the real-estate downturn. And after no major U.S. lenders would back him, he turned to the Middle East to obtain financing from two of Abu Dhabi’s wealthiest investment funds.

His gamble paid off handsomely. As One57 started sales, U.S. economic growth snapped back. As one of the few new luxury condo buildings on the market, One57 attracted billionaires from Russia, China and the Middle East. The condominium is the first ever New York City building to break the $100 million threshold for a single condo.”

Frequently, at the beginning of a discussion on a topic new to them, clients have an incomplete or erroneous understanding of the topic. An advisor does well not to trample on the client’s understanding. The process of understanding frequently needs to occur in an atmosphere where there is a respectful give and take.

In the end, unless a true mutual understanding is reached no meaningful understanding has been achieved at all between the client and the advisor, and the client usually does not become a client of the advisor. In the end, what is left is a topic or concept with two different understandings, and both understandings think that they are correct.

What if one of these understandings is actually false?

There have been many discussions of late on “fake news,” what constitutes it, and how it is created, and how it affects our lives. Let us examine the strange case of Claas Relotius.

With PPLI our company is careful to discern at the beginning of a discussion whether PPLI is in fact the right planning choice for the client. By analyzing the structure thoroughly, we insure a more successful PPLI outcome at the end of the process.

Here we have an award winning journalists, who evidently was the perpetrator of “fake news” for many years. We are grateful to another Wall Street Journal article, “Germany’s Der Spiegel Says Reporter Made Up Facts,” by Bojan Pancevski and Sara Germano.

“BERLIN—Europe faces its largest journalistic scandal in years after Der Spiegel, the continent’s biggest-selling news magazine, said one of its star reporters fabricated facts in his articles for years.

The magazine’s disclosure, which came after a colleague raised concerns about a recent piece on supporters of President Trump in rural America, was made as Europe’s established media faces attacks by populist forces at home and abroad.

Claas Relotius, an award-winning journalist, resigned from the magazine last week after admitting to making up parts of his reporting in the past decade, Der Spiegel said late Wednesday.

Mr. Relotius couldn’t be reached for comment.

According to the magazine, Mr. Relotius, 33, invented characters, dialogue and events in his coverage of subjects ranging from a Guantanamo inmate who no longer wanted to leave the prison to civil war orphans in Syria.

“We must see what control mechanisms failed, whether they did or whether we were negligent,” Steffen Klusmann, who will become the magazine’s editor in chief next year, said in a video interview posted on the magazine’s website.

Major news organizations have faced a number of crises in recent decades over reporting that was later determined to contain fabricated material.

In seven years writing for Der Spiegel, Mr. Relotius became one of Germany’s most highly regarded journalists, accumulating 10 coveted awards.”

How does one protect oneself from the rain?  Usually by providing some cover, like a waterproof outer garment. Let us cast life insurance into the role of this protective outer garment. In our next article, we will divulge how PPLI provides this protection. Please let us know how we can keep your assets ‘as right as rain.’ PPLI can solve a myriad of asset structuring needs. Your suggestions and comments are very welcome. Please write them at the bottom of this article or Contact Us directly.

 

~ by Michael Malloy, CLU, TEP

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PPLI and Understanding

How do we achieve understanding?

Part 1

 Our next five articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI to the Rescue. 

How we arrive at understanding is a process that is comprised of several steps. Since the main function of our firm, Advanced Financial Solutions, Inc., is using Private Placement Life Insurance (PPLI) to structure the assets of wealthy families, we must impart an understanding of PPLI daily. Let us examine what we do to achieve the exceptional results that we accomplish for these families in using PPLI.

First, let us look at an academic definition of understanding from Wikipedia.

“Understanding is a psychological process related to an abstract or physical object, such as a person, situation, or message whereby one is able to think about it and use concepts to deal adequately with that object. Understanding is a relation between the knower and an object of understanding. Understanding implies abilities and dispositions with respect to an object of knowledge that are sufficient to support intelligent behavior.

Understanding is often, though not always, related to learning concepts, and sometimes also the theory or theories associated with those concepts. However, a person may have a good ability to predict the behavior of an object, animal or system—and therefore may, in some sense, understand it—without necessarily being familiar with the concepts or theories associated with that object, animal or system in their culture. They may have developed their own distinct concepts and theories, which may be equivalent, better or worse than the recognized standard concepts and theories of their culture. Thus, understanding is correlated with the ability to make inferences.”

Understanding is a relation between the knower and an object of understanding.” This is key. This “relation between the knower and an object of understanding” is something one must find out in the midst of explaining a concept like PPLI to a client. One might call the process divining their attitude towards the topic in the midst of explaining the concept to the client.

This is most readily heard in a tone of voice, and seen in body language. When a client does not understand something or his or her interest wanes, it is time to switch to another way of explaining the topic.

The advisor in our Concept Map has not given this client a satisfactory explanation of PPLI, and the client is not shy about letting him know his feelings!  Perhaps this client was not given the basics of PPLI, and this is the source of his consternation.

Let us proceed to an excellent source of knowledge about PPLI that does give the basics and more, “Using Life Insurance and Annuities in U.S. Tax Planning for Foreign Clients by Leslie C. Giordani, Esq., Michael H. Ripp, Jr., Esq., and Mari M. Reed, Esq.* Giordani, Swanger, Ripp & Phillips LLP Austin, Texas from The Tax Management Journal. This article discusses the use of PPLI for non-U.S. persons from a U.S. tax perspective.

INTRODUCTION: AN ELEGANT SOLUTION TO DIFFICULT PROBLEMS

U.S. tax planning for foreign clients involves complex issues and even more complicated rules. Advanced planning can, however, provide significant opportunities for clients to minimize or avoid costly tax consequences. The issues faced by these clients include high tax liabilities associated with potential accumulation distributions from undistributed net income earned in foreign trusts and taxation of an NRA’s U.S.-source income and an NRNC’s U.S.-situated assets.

As discussed in this article, investing a foreign client’s funds in a life insurance or an annuity policy can provide an elegant solution to many of these issues and numerous additional benefits. Life insurance and, to a lesser extent, annuities have long been favored under the U.S. Internal Revenue Code. Further, life insurance and annuities can be used as: (1) estate planning tools to mitigate estate tax liability and facilitate the orderly disposition of assets at death; (2) asset security vehicles, offering both financial privacy and protection from future creditors; and (3) mechanisms to augment the philanthropic goals of charity-minded clients.

In some cases, life insurance and annuities can also reduce or defer clients’ income tax liabilities through tax-free growth inside properly structured policies and via the avoidance of taxes and penalties associated with certain distributions from foreign non-grantor trusts. Finally, investing in life insurance or an annuity contract can also ease clients’ income tax compliance burdens. This article addresses the ways in which life insurance and annuities can be employed to maximize the benefits of these powerful planning tools, focusing on ways to minimize or avoid U.S. income and transfer taxes for foreign clients. We will examine the fundamentals of life insurance and annuities including the various types of life insurance available in the marketplace and basic structuring issues relating to annuities.

We will discuss the U.S. tax rules that must be satisfied for a contract to qualify as life insurance or an annuity and, in some cases, a variable contract. We will analyze the U.S. income tax treatment and estate tax treatment of life insurance and annuities. Finally, we will discuss applications of life insurance and annuity planning to several key international estate planning topics, including the use of foreign trusts, pre-immigration planning, and the benefits of annuities for temporary U.S. residents.

Understanding Includes Trust

The process of understanding also must include some element of trust. This is mostly built over a period of time, but even at the initial client/advisor meeting this bridge must be crossed by the client for the relationship to continue.

In her excellent articles, “Notes from Caroline,” Caroline Garnham a London attorney who works with UHNW clients, gives us a story about a client that gives us an insight into the world of a UHNW client. The story reveals a certain aspect of this element of trust which is stated succinctly in the aphorism: to understand a person one must walk in the other person’s shoes. Ms. Garnham does an excellent job of describing what it is like to walk in the shoes of an UHNW client.

“George a PR agent, who acts for one of the wealthiest people in the Sunday Times Rich List, arranged to meet his client in a country golf club. George arrived at the agreed time, but still hovering above him was his client’s helicopter and it wasn’t making an approach to land. George phoned to find out why.

The client refused to land due to a charge of £95. George offered to pay – he hadn’t spent two hours travelling to a far-flung golf club only to have the meeting cancelled. The client – in a rage – refused to let him pay. This was a matter of principle. So, George had to plead with the golf club to waive its fee which it eventually did, and George’s client finally landed.

Surely the golf club should be encouraging their members to arrive by helicopter and governments should encourage the rich to live in their country, as it adds cachet to the club. By charging a fee, the club was in severe danger of losing one of their most prestigious members, purely through greed. Their thinking was if you can afford a helicopter you afford a landing fee. As in France – if you are wealthy you can pay a wealth tax. It’s like saying if you drive to the club in a Bentley you pay a parking fee, but if you arrive in a Toyota you don’t.

UHNW individuals are being fingered for money ALL THE TIME. It is hardly surprising therefore that they fly off the handle and appear difficult when they are being fleeced for yet more cash. Being pestered for money is a way of life for them, and most of them hate it, which is why they want to preserve their privacy and live in countries which appreciate their contribution.

We may watch their antics with surprise, but most of us do not know what it is like to be wealthy. However, as advisers, we need to understand them.

UHNW individuals are looking for people they can trust. But trustworthy people cannot be bought with money, because their precious quality is an attitude rather than a product. UHNWs want advisers who care for them, who see them as people rather than money mountains. Unfortunately, there are many organisations which stifle any attempt on well-meaning advisers to provide a personal service for their clients.”

One wise person said that, “We have two ears, and one mouth, because we need to listening twice as much as we speak.” It is not possible to present PPLI to a client unless one knows how they think about it. The advisor finds out by listening to what the client says and not giving a lecture.

Obviously, the understanding that we speak about has not been achieved here, so please follow us to Part 2, and find out more. We hope you enjoy this new format, and look forward to increasing your understanding about PPLI. Please contact us for a free initial consultation.

 

~ by Michael Malloy, CLU, TEP

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The PPLI Papers

Secure Wealth and Tax Compliance Through Private Placement Life Insurance

The PPLI Papers available on Amazon

During this past week Amazon selected The PPLI Papers as the No. 1 book in their Insurance Law section. Amazon is also running a special on my book from Saturday, February 9th, to Wednesday, February 13th. The PPLI Papers will be available for a free download during this period. The print version of the book is in process, and will be available in a few weeks.
 
Here is the Amazon link to the book: https://amzn.to/2SyMKpu
 
  • We hope you take advantage of this offer!
  • Your comments and suggestions are most appreciated.
  • Let us know how you like the book, (bottom of the page).
Thank you.
~Michael
Introduction

Were you concerned about the revelations of the Panama Papers and the  Paradise Papers? If you are concerned about lack of privacy and want to structure your assets to enhance privacy, tax efficiency, and asset protection, look no further.  Here you will find an approach that gives you all the privacy you seek to retain while remaining in full compliance with tax authorities worldwide.

We are talking about the use of a specialized life insurance policy–Private Placement Life Insurance (PPLI). Much more than just an insurance policy, it is a conservative approach that offers a trustworthy and reliable method of achieving these aims.

PPLI is unlike any other life insurance policy you may have encountered. To quote from Senior Consultant, The Voice of the Investment Management Consultant:

“Private Placement Life Insurance (PPLI) is much more than an insurance policy. PPLI represents one of the most powerful vehicles available to the high net worth investor in the marketplace today.”

The Wikipedia article, International tax planning, discusses the concept of Expanded Worldwide Planning (EWP), the overarching planning tool that emerged from the regulatory framework introduced by FATCA and CRS. This article tells us:

“At the heart of EWP is a properly constructed Private placement life insurance (PPLI) policy that allows taxpayers to use the regulatory framework of life insurance to structure assets along the client’s planning needs.”

The aim of this book is to give you a general knowledge of Private Placement Life Insurance and introduce wealthy international clients to the possibilities of structuring their assets to their greatest benefit in the wake of the Panama Papers and Paradise Papers. We will offer news stories, discussions by various authors on PPLI, and related topics such as tax planning. The book consists of my articles over the last several years, and will give you access to videos on PPLI.  The diversity of the articles mirrors the diversity of PPLI structuring possibilities that are available throughout the world.

My sincere hope is that you come away with a structure that achieves your aims. For maintaining full privacy while maximizing tax savings, and asset protection, PPLI is one of the world’s best kept secrets.

 

~ by Michael Malloy, CLU, TEP

 

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Fostering Discipline Is Paramount

PPLI Joins ‘Two Sides of the Same Coin’

To be thorough and open to new possibilities at the same time requires discipline: embracing ‘two sides of the same coin.’  In the PPLI structuring of wealthy international families’ assets, Advanced Financial Solutions, Inc. strives to achieve this aim. For each new case we exam similar PPLI cases that we have handled in the past. For the specific knowledge that we will need for new cases which we might lack, we have an excellent resource of professional advisors worldwide that can be easily contacted to supply this missing knowledge for a successful PPLI structure to be created.

For our analogous examples we have one from the area U.S. tax planning and how it affects U.S. beneficiaries of Foreign Grantor Trusts, and strangely enough, one from high-fashion. This example shows us what happens when the ‘two sides of the same coin’ turn out to be the same thing, and–to change this analogy–the coin loses its luster by turning out to be a copy. In a humorous vein, you can view this also as social media bringing transparency to haute couture.

Before we share the above material, we are pleased to give you this description of PPLI from International Life Insurance edited by David D Whelehan, JD in the chapter, “International Life Insurance An Overview.

“This product is for the wealthy, “accredited” investor. They are usually very large single premium structures. It is classified more as an institutional product, as the charges and fees are quite low in comparison to retail products described above. Another advantage is investment flexibility as they generally can be invested in things not permitted in a general account retail product, like hedge funds and private equity.

Premiums and benefits can also be paid in “kind,” as opposed to in cash. In addition, the policyowner can select his, or her, own Investment Manager for just the single policy to invest according to the policyowner’s general directions. The Custodian of the underlying assets in the fund can also be selected by the policyowner. Private placement products are tailored to meet specific objectives of the client, but are carefully designed to be compliant with local tax laws, so as to enjoy the tax treatment desired.”

In the STEP Journal Melvin A Warshaw and Lawrence M Lipoff discuss a key change to the US Tax Cuts and Jobs Act of 2017, and assess what it means for advisors to trustees of foreign grantor trusts. They conclude that due to recent changes in U.S. tax law that a properly structured PPLI provides an excellent solution for U.S. beneficiaries of foreign grantor trusts.

A Simpler and Safer Strategy

“In a previous two-part article,[1] we presented US tax advisors with our highly technical analysis of a key change in the foreign tax provisions of the US Tax Cuts and Jobs Act of 2017 (the Act) impacting how trustees of foreign grantor trusts (FGTs) traditionally hold US-situs portfolio assets that potentially benefit both US and non-US heirs of a non-citizen, non-resident (NCNR) of the US.”

Trustees must analyze whether their existing single foreign corporation (FC) strategy is still viable and, if not, what steps they should take to address this US tax law change. Some advisors suggest a second FC and others a two-tier or three-tier FC structure. Leaving aside that planning variations relying on different entity structures may be one option, we believe that offshore[2] private placement life insurance (PPLI) may offer a far simpler and safer strategy.

Under pre-2018 US tax law, trustees of FGTs generally relied on a single non-US holding company to shield the NCNR grantor of an FGT from US estate tax on US-situs portfolio assets. Following the death of the NCNR, the trustees would effectively eliminate this FC by filing a post-death, retroactive (so-called ‘check-the-box’) election within 30 days of such death. Gain recognition would be avoided on the historical pre-death unrealised appreciation of the US portfolio assets, prior to elimination, i.e. liquidation, of the FC, as well as pre-2018 controlled foreign corporation (Subpart F CFC) passive income tax and related tax compliance. Plus, the US heirs would achieve a basis step-up in the underlying US portfolio assets equal to their fair market value (FMV) on the date of the election.

The Act repealed the 30-day retroactive election for tax years after 2017. Under current US tax law, a post-death ‘check-the-box’ election for the trust’s FC could cause US beneficiaries of the trust to inherit the historical pre-death unrealised appreciation in the US-portfolio assets and incur cumbersome US tax compliance. Further, if an FC is a CFC for even one day during the tax year, there could be potential phantom income for the US beneficiaries of the trust now encompassing the new US ‘global intangible low taxed income’ (GILTI) regime.

Continuing a single FC

The single FC structure continues to be effective in preventing imposition of US estate tax on the US portfolio assets held by the FC. If most of the NCNR’s trust beneficiaries are US persons (citizens or residents),[3] the trustees and US advisors must anticipate that there will now be US income tax and US tax reporting on historical appreciation of the assets held in the single FC that would eventually be recognised by the US beneficiaries after the NCNR’s death. If most of the trust beneficiaries are not US persons, it may be possible that the single FC will lack sufficient beneficial ownership by US persons to qualify as a CFC.

Side-by-side FCs

Another approach suitable for families with both US and non-US persons as beneficiaries is to have the trustees of the FGT create a second FC, which would own only non-US-situs assets. The original FC would own only US securities. The non-US portfolio assets owned by the second FC would be earmarked to benefit solely non-US persons as trust beneficiaries after the death of the NCNR. The US portfolio assets owned by the existing FC would be earmarked for the US beneficiaries. There would be no US estate tax on the non-US assets owned by the second FC. A retroactive check-the-box election could be filed for this second FC effective on the day before the NCNR’s death.

Some US advisors advocate relying exclusively on entity structuring to convert a single FC into a multi-tier FC structure involving at least three FCs. Prior to the NCNR’s death, the trustees of the NCNR’s FGT would create two FCs. These two FCs would then together equally own the shares of a third lower-tier FC. The US portfolio assets would be owned by the lower-tier FC. Following the death of the NCNR, the lower- and upper-tier FCs would be deemed liquidated for US tax purposes (by filing check-the-box elections) in a carefully scripted sequence as follows.

  1. First, the upper-tier FCs would each file a check-the-box election for the lower-tier FC, effective one day prior to the death of the NCNR. This results in a taxable liquidation of the lower-tier FC without current US income tax on the historical pre-liquidation unrealised appreciation inside the FC. However, the upper-tier FCs’ basis in the underlying US securities held by the former lower-tier FC will equal the FMV of such assets on the date of the deemed liquidation of the lower-tier FC.
  2. Second, two days after the NCNR’s death, both upper-tier FCs will make simultaneous check-the-box elections. The inside basis of the US portfolio assets previously held by the lower-tier FC prior to its deemed taxable liquidation would be stepped up or down to the FMV of such assets on the day after the death of the NCNR.

Advocates of this highly complicated, carefully scripted entity structure and serial liquidation strategy for US portfolio assets indicate that, if successful, the results should be comparable to the results under prior law. However, this is not without some new tax and reporting risks, as noted above, nor does it address the question of what the independent significant non-tax business purpose for ‘each’ of the three FCs would be.

Offshore PPLI

Assuming the NCNR is insurable, advisors should seriously consider the possibility of their NCNR clients, with significant US portfolio assets, and US persons as potential beneficiaries investing in certain types of offshore PPLI policies that in turn invest in US assets.

Purchasing an offshore US tax-compliant PPLI policy will result in no US income tax recognition in the annual accretion in the cash value growth of the policy. Holding the policy until death is equivalent to receiving a US basis step-up at death on the death benefit that is payable in cash. In planning for the US beneficiaries of the NCNR, if the revocable FGT were named as owner and beneficiary of the PPLI, this trust could be structured to pour over at the death of the NCNR to a US dynasty trust organised in a low-tax jurisdiction with favourable state trust laws. This structure will ensure that the death benefit pours over to a US domestic trust that will not become subject to foreign non-grantor trust (FNGT) tax rules.

A non-admitted offshore carrier obviates CFC status for the policy and policy owner by making a certain special US tax code (s.953(d)) election to be treated as a US domestic carrier. Aside from avoiding CFC status for the policy and its owner, making this special election causes the carrier to absorb US corporate income tax and administrative costs to comply with US informational tax reporting. The hidden benefit of an offshore carrier making this special US tax election is that it enables such a carrier to claim a special deduction of reasonable reserves required to satisfy future death benefits. The offshore carrier simply absorbs the cost of US income tax compliance including its responsibility for CFC and passive foreign investment company (PFIC) reporting. There is no look-through of an insurance policy to its owner for the purposes of applying the PFIC rules. So long as the NCNR avoids any control over the selection of specific investments made by the policy owner for the policy, investor control should not be a concern.

Our conclusion is that current US tax law provides clear support for the proposition that the PFIC and CFC rules should not apply to a US tax-compliant policy issued by a foreign carrier that files a special (s.953(d)) election with the Internal Revenue Service. This will result in the tax-free inside growth in the PPLI policy that, if held until the death of the NCNR, will result in no income tax on the death benefit. We believe that purchase of an offshore PPLI policy by the NCNR through an FGT that pours over to a US dynasty trust is an efficient, safe and simple solution that allows an NCNR to invest in US portfolio assets, and leverages that investment and all subsequent growth tax-free into policy death benefit available to US beneficiaries after such death.”

From the Wall Street Journal, we share “Fashion Industry Gossip Was Once Whispered. Now It’s on Instagram” by Ray A. Smith.

“Shortly after designer Olivier Rousteing showed his fashion collection for Balmain in Paris last September, French designer Thierry Mugler posted on Instagram.

Mr. Mugler, famous in the 1980s and early ’90s for power suits and the George Michael “Too Funky” video, posted a series of side-by-side images comparing his past ensembles to Mr. Rousteing’s new looks. Next to a Balmain black, one-shouldered jacket-dress with white lapels, Mr. Mugler posted his own similar design from 1998 with the comment: “Really?”

Along with Balmain’s dress featuring a graphic, webbed print, Mr. Mugler, who now goes by the first name Manfred, attached his own webbed design from 1990. “No comment!”

The episode surprised Mr. Rousteing. “Oh my God, I’m so sorry for him, seriously,” said 33-year-old Mr. Rousteing about 69-year-old Mr. Mugler in an interview. He denied copying the designer.

In the past, copycat allegations rarely reached beyond fashion industry gossip—or sometimes courtrooms—and rarely made it to the wider public. Now with Instagram, fashion’s favorite app, accusations spread much faster and to a wider audience. Eagle-eyed accusers can post comparison pictures and add arrows and circles to zero in on the alleged offense immediately after a fashion show, now that runway images are beamed out in real time.

High-end fashion labels are increasingly being called out on social media for copying other designers or designs, leading to back-and-forth exchanges, lawsuits and expensive apologies.

Instagram accounts, including Diet Prada, have formed to focus on designers and retailers whose creations some feel look too much like other designers’ past work. Since its 2014 launch, Diet Prada, which isn’t affiliated with Prada, has amassed more than 960,000 followers. The Fashion Law blog and CashinCopy Instagram feed also name and shame copying.”

If you are looking for a bespoke solution to your asset structuring needs, we welcome you to contact us. You will also benefit from our conservative and fully compliant methodology of using PPLI as the centerpiece of the structure. You will be pleasantly surprised to experience ‘two sides of the same coin.’

 

[1] M. A. Warshaw and L. M. Lipoff, ‘How to Navigate the Choppy Seas for Foreigners With U.S.-Based Heirs: Part I’, Trusts & Estates (June 2018), and ‘Non-Citizen, Non-Resident Options for Life Insurance’, Trusts & Estates (August 2018)

[2] All uses of ‘offshore’ and ‘foreign’ are given from the perspective of the US.

[3] All references to ‘US persons’ in this article refer to citizens and residents only.

 

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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PPLI AND JURISDICTIONAL ISSUES

Whose Jurisdiction Is This? Private Placement Life Insurance Defines and Simplifies

A proper understanding of jurisdictional issues is key to a successful Private Placement Life Insurance (PPLI) structure. One cannot simply take the assets of wealthy international families and move them offshore and expect a good result. The tax residence of the family is paramount, as well as the tax residence of the beneficiaries. A PPLI structure that is successful in one country, might not work in another. These factors must be thoroughly researched for the wealthy international family to have a successful PPLI structure. Since these PPLI structures tend to be long-term the necessity for this thorough research is even more compelling.

What are the areas that must be looked at to produce a successful outcome? The jurisdictional issues involved in all these areas must be addressed: tax treaties; tax laws; insurance laws; forced heirship issues, trust domicile; location of the assets; and tax reporting issues.

For our examples which illustrate jurisdictional issues, we give you one news story and excerpts from an excellent scholarly article: “GILTI: “Made in America” for European Tax Unilateral Measures, Excess Profits & the International Tax Competition Game” by  G. Charles Beller, UVA Law School, Class of 2018, Virginia Tax Review (forthcoming 2019).

As you will read our news story demonstrates how an unwanted intrusion by one jurisdiction into another can produce a very bad result. In the area of international taxation, individual countries are now competing with each other for international tax dollars. Governments are looking for a system that avoids unwanted intrusions at any level and respects the sovereignty rights of each country.

A key question posited by this article is: “How does Global Intangible Low-tax Income (GILTI), the U.S. global minimum tax on excess profits introduced with the “Tax Cuts and Jobs Act’s” (TCJA) fit into the larger debate about international tax avoidance, “harmful tax competition,” and taxation in the “digital economy”? As you will read, the article reaches a compelling new paradigm, partial developed from game theory, that could be a model for future international tax transactions.

Here are some key points from the article:

“Rather than perpetuate trans-Atlantic hostilities as Europe and the OECD consider the “digital economy,” the U.S. tax and business communities should explain how GILTI promotes beneficial competition on productive factors, discourages base erosion and profit shifting by U.S. multinationals (MNEs), and provides cover for European and other developed countries to modernize international tax rules consistent with longstanding principles of tax territoriality.

Political developments in the European Union and OECD suggest that EU member states need not feel guilty about leveraging a GILTI-esque minimum tax tool to combat the challenging issues facing international taxation in the digital age. Indeed, Germany has suggested a GILTI like minimum tax tool as part of a multilateral OECD proposal to confront challenges in taxing the “digital economy” – “a kind of BEPS 2.0” that utilizes U.S. unilateral action to facilitate multilateral cooperation.

At the heart of the controversy over GILTI, “Digital Taxation,” and the larger BEPS project is a debate about the propriety and benefits of tax competition. While tax competition is a controversial concept among economists and tax lawyers, recent scholarship provides a typology to talk productively about tax competition.

This paper draws on the theory of tax competition and language of international tax neutrality to argue that international tax policy must be viewed through the lens of “national welfare” when considering strategic incentives and thus positive predictions about nation state behavior in the international tax competition game.

Viewing tax competition and GILTI’s global minimum tax through the prism of game theory yields important insights into the potential for unilateral U.S. action to alleviate global collective action problems. An important question in evaluating GILTI is whether it enables potential cooperative behavior among developed economies through signaling and minimum standards by a sovereign with “pricing” power to set global rate and base terms for MNEs.

In short, is GILTI a harmful unilateral measures that undermines cooperative efforts in the OECD and EU? Or is GILTI like FACTA — a veiled if unsolicited gift for developed EU economies? This paper answers these questions and highlights the potential of a global minimum tax on excess profits to further debate about international taxation in a digitized economy while retaining foundational principles of tax territoriality.

Sovereignty and multilateralism have become buzzwords defining battle lines in a global debate about political ideology and international relations. International tax policy is a technical field that must skirt ideological battles and avoid aligning with “pure” multilateralism or “radical” unilateralism. While BEPS took an ideological position in arguing that cooperation stands in conflict with unilateralism, this paper shows how unilateral measures can foster beneficial cooperation in certain areas of the international tax policy.

As the FACTA/BEPS histories and GILTI parallels suggest, cooperative action is facilitated under certain scenarios through unilateral action with cooperative potential. Global minimum tax rates can operate as a sovereign cartel tool without clear efficiencies for productive factor competition or tax diversity. GILTI takes a different approach. It does not attempt to impose a global minimum tax rate by way of multilateral horse-trading. Instead, GILTI implements a resident based global minimum tax on excess profits that enables productive factor competition. Moreover, GILTI respects traditional principles of tax sovereignty and territoriality. GILTI’s resident based global minimum tax allows competing sovereigns to set their own rate and base terms. GILTI merely limits the benefit that foreign source rates confer on resident foreign profits.

As a result, GILTI’s resident global minimum tax tool shifts international tax competition away from a cat and mouse game of tracking down and labelling “tax havens” or “harmful” tax competition. Instead, the hunt for “harmful” tax competition is replaced with a productive experiment among competing sovereigns for a diverse array of resident benefits that allow domestic firms to exploit excess profits at home and abroad. Under GILTI (and similar tax tools), resident MNEs share the surplus of excess foreign profits with the resident sovereigns that make those profits possible. By enabling resident sovereigns to share in excess profits while at the same time limiting the tax benefit of foreign low tax rates, GILTI furthers productive factor competition.

As EU member states seeks to develop international tax policy for the “digital age,” productive factor competition should be a primary goal. Moreover, Europe must avoid a “two-hemisphere” mindset that targets digital tax revenues earned in the EU while dismissing identical proposals from developing countries targeting European revenues around the globe. GILTI bolsters productive factor competition while retaining the foundational principles of tax territoriality and sovereignty that protect resident firms when operating in foreign markets. That’s why GILTI is a tax tool “Made in America” for European tax.”

Our news story demonstrates a more confrontational jurisdictional dispute with a sad ending:  “American Missionary Killed by Isolated Tribe Wrote of Confrontation With the Group,” by Corinne Abrams and Rajesh Roy of the Wall Street Journal.

“As American missionary John Allen Chau sat aboard a boat near a remote Indian Ocean island known for its violent and isolated inhabitants, he wrote a message to his mother and father he made clear might be his last.

“You guys might think I’m crazy in all this but I think it’s worth it to declare Jesus to these people,” he wrote Friday. “Please do not be angry at them or at God if I get killed—rather please live your lives in obedience to whatever He has called you to and I’ll see you again.”

Within a day, Mr. Chau was missing. Five fishermen who took him to North Sentinel Island said they saw the body of someone resembling him being buried under the sand by members of the tribe that allegedly killed him.

Mr. Chau, 26, was visiting the island in India’s Andaman and Nicobar archipelago to try to spread the word of God, according to diary entries released by police.

The tribe has a long history of violent resistance to outsiders and is protected by laws that bar visitors from docking boats within 5 nautical miles (5.75 miles) of the shore.

Mr. Chau’s Instagram page shows a young man passionate about travel and new experiences. In July, he posted photos taken from a canoe and from a diving expedition with the hashtag #Andamans. Many of his posts are hashtagged #Solideogloria, the Latin phrase for Glory to God Alone.

In the journal, Mr. Chau wrote that he was on a mission to establish a kingdom of Jesus, Dependra Pathak, director general of police in the Andaman and Nicobar Islands said. Instead, he died during a “misplaced adventure in the highly restricted area,” Mr. Pathak wrote in a statement.

The islanders, part of the Sentinelese tribe whose origins date back tens of thousands of years, have a long history of hostile reactions to outsiders.

“They are very aggressive and violent. Anyone trying to access the area gets showered with arrows,” Mr. Pathak said.”

Luckily, at Advanced Financial Solutions, Inc. our job is not to decide what is right and proper for one jurisdiction in its relationships with other jurisdictions. Our job is to arrange the jurisdictional elements of PPLI structuring to achieve the best possible result for our clients. From our years of experience, this best possible result is a combination of outstanding tax savings, privacy enhancements, and asset protection benefits. We would like to help you achieve these benefits too. Please contact us with your worldwide asset structuring needs.

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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Resolving the Contradiction of Changeless Change

PPLI Can Do It

Resolving the Contradiction of Changeless Change

Can you use a well-established product as a process for the structuring of the worldwide assets of wealthy international families? Yes, is the resounding response from Private Placement Life Insurance (PPLI).

PPLI is both a standard product and a process, and hence its versatility, and at the same time, its stability. PPLI gives a structural framework to the diverse holdings of wealthy international families. Because PPLI is a product and common in the world’s tax and legal frameworks, there is a large body of laws and regulations that give advisors–a road map to follow.

This allows PPLI to give the assets of wealthy international families full privacy and tax savings, and at the same time, compliance with the world’s tax authorities.

To explore the concept of change, our article gives you an example from the world of self-driving automobiles.   We also share with you a legal challenge to the OECD’s CRS program.

Changeless Change is also a good description of China. This ancient civilization has transformed itself into a 21st century nation in only a few short years. Shanghai, China, is the venue of the video, “Our Journey Together” Part III, of my presentation at the 5th annual FOA Forum that we offer you below.

PPLI is also known as Private Placement Variable Universal Life Insurance (PPVUL). Its name speaks to the internal workings of the product. It is both life insurance and a home for investments. This is a definition from Cornell University Law School’s Wex Legal Dictionary:

“A form of whole life insurance that combines aspects of universal life insurance and variable life insurance and provides for a death benefit and accrues cash value on a tax-deferred basis. Variable universal life insurance (“VUL”) policies allow for flexibility in premiums, death benefits, and investment options.”

So how does a product become a process, a structuring tool? PPLI is a type of PPVUL, but with very unique characteristics. These are the characteristics that allow clients to accomplish so many valuable elements in the single structure:

Open Investment Universe–Almost any asset that can be held by a trust company can become part of a PPLI policy. With proper structuring even operating businesses can be included.

Simplified Reporting–The assets inside the policy are held in separate accounts for the policyholder, meaning that they are not part of the general assets of the insurance company. But for reporting purposes, the insurance company becomes the beneficial owner of the assets.

Asset Protection–The insurance policy adds another layer of asset protection in the structure. The domicile of the insurance companies also is a help here, as they are located in jurisdictions that have strong asset protection laws, like Bermuda and Barbados.

Low Fees/Commissions–Most often there is a 1% set-up fee. And the ongoing fees are frequently less than 1% of the assets inside the policy. This contrasts sharply to the large first year commissions charged by Universal Life and Whole Life policies.

Now for our examples of how change plays out in the world today. Self-driving cars and the OECD’s CRS are concepts that did not exist a few years ago. To make their way into our everyday world is not an easy task. They both have something to offer, but they must fit into other structures that have existed for longer periods. They are like new pieces of a jigsaw puzzle introduced when the puzzle seems to be complete.

Self-driving cars Encounter Political Roadblocks” by Mike Colias and Tim Higgins of the Wall Street Journal, give us a glimpse into the process of integrating technological change into the world.

“Auto makers and other companies racing to commercialize self-driving car technology are facing pushback from local politicians, complicating their plans to bring real-world testing to more U.S. cities.

In New York City, General Motors Co. has put on hold plans to begin testing in Manhattan because Mayor Bill de Blasio has expressed concerns about the technology’s safety, according to people familiar with the matter. GM said last year it would be the first company to start driverless-car testing in the city, starting in early 2018.

In Chicago, the city council’s transportation-committee chairman has vowed to block self-driving cars from operating in the nation’s third-largest metropolis, citing safety concerns and the potential for displacing taxi drivers and other jobs.

Even in Pittsburgh, a hotbed for autonomous-vehicle research and development, city officials have recently adopted more stringent requirements, demanding that driverless-car developers detail how a vehicle’s safety system works before granting permission to test on public roads.

A fatal crash in March, when an Uber Technologies Inc. self-driving test car stuck and killed a pedestrian in Tempe, Ariz., has fueled concerns over putting such prototypes on public roads, especially in big cities that tend to be more crowded, transportation officials say. Also, many city leaders say they want companies to show that the technology will provide wider social benefits, such as reducing congestion and helping low-income residents get around.

“It’s a lot of local politics that are difficult to navigate,” said Bradley Tusk, founder of Tusk Ventures, which works with startups on regulations and other political issues. “These are hard issues. You’re talking about small spaces that are very congested.

Meanwhile, a Senate bill that aims to establish nationwide regulations for self-driving cars has stalled in Congress. Without federal direction, cities and states are left to act on their own, creating a patchwork of rules and red tape for companies plowing billions into the technology and hoping to eventually turn their testing into profitable ventures.

GM Chief Executive Mary Barra has called self-driving vehicles “the biggest opportunity since the creation of the internet.” GM, Alphabet Inc.’s self-driving car unit Waymo LLC and others are betting these services will create a market for customers wanting to hail a robotic car much like they do an Uber or Lyft Inc. ride. Some analysts estimate that market could eventually be valued at trillions of dollars.

GM and Waymo are among companies that have been testing in a handful of U.S. communities for years and are getting closer to launching services to paying customers. GM plans to introduce a new robot-taxi service next year, likely in San Francisco, where the auto maker has done the bulk of its testing. Waymo said Nov. 13 that it will begin offering rides in self-driving cars to Phoenix-area customers in the coming weeks.

Companies say that in some cities, they are working closely with officials to assuage concerns, but much more work is needed before a wider rollout is possible.”

Barney Thompson of the Financial Times, shares with us “EU National Challenges HMRC Over New Data Sharing Rules.” CRS aims to assist governments in the fair collection of taxes, but are data protection safeguards in place to protect our rights to privacy?

“An EU national is challenging HM Revenue & Customs over new rules that require tax authorities around the world to automatically exchange information on millions of their citizens who live abroad.”

In a complaint to the UK’s data protection regulator, the EU citizen said the common reporting standard — a key measure against tax evasion developed by international experts that is now being gradually introduced by more than 100 countries — made her personal information vulnerable to cyber hacking or an accidental leak.

However, campaigners have defended the measure, saying it was an important tool in the fight against tax avoidance and evasion, notably through offshore financial centers.

The EU citizen who has made the complaint about the common reporting standard — who does not want to be identified — is currently domiciled in Italy but is described as having “a very international background”.

She lived in the UK for several years and was tax resident in Britain, acquiring a unique taxpayer reference and a national insurance number. She also still has a UK bank account with a deposit of £4,000.

Even with this relatively small amount, her bank is required under the common reporting standard to disclose certain information to the HMRC, including the account number, balance, her name, date of birth and tax number.

In turn, HMRC must pass on the information to its counterpart in Italy, which it is due to do in September.

Exchange of information would be automatic

In theory, any UK bank account holder living in another country that abides by the common reporting standard falls under the scope of its rules.

Within the EU, almost 19m people are estimated to live in a different member state to the one in which they were born.

Like the US foreign account tax compliance act, on which it is based, the common reporting standard was designed as a way to counter global tax evasion by making the exchange of information between countries automatic rather than have tax bodies request it if they suspect wrongdoing.

The standard was developed by the Organisation for Economic Cooperation and Development, the Paris-based international body that co-ordinates co-operation between different tax jurisdictions.

Several countries have poor data security

In her complaint against the common reporting standard to the UK Information Commissioner’s Office, the EU citizen said the exchange of information required by the rules will expose her to “a disproportionate risk of data loss and potentially hacking”.

She added: “This risk has crystallised recently in light of incidents in which HMRC has lost data concerning UK taxpayers and recent data breaches concerning UK banks.”

Her complaint cited how HMRC had lost the personal records of 25m taxpayers in 2007, as well as a media report in 2017 outlining how the tax authority’s website was vulnerable to cyber attacks. HMRC subsequently took action to fix the weaknesses.

Among the countries that have signed up to the common reporting standard are several with poor data security records, added the woman’s complaint.

Furthermore, data leaks such as during the TSB online banking failure this year and attempts by cybercriminals to hack the online tax details of British taxpayers illustrated the dangers around the mass exchange of sensitive personal information, it said.

As a result, the common reporting standard infringed the new EU-wide General Data Protection Regulation, which came into force in May, as well as European human rights laws, said the complaint.

Rules risk ‘identity theft on a grand scale’

The Information Commissioner’s Office has the power to impose temporary or permanent limits on the processing of personal data if it decides that GDPR rules are being infringed.

The office said:

“We have received a complaint relating to HMRC and the common reporting standard and will be looking into the details.”

Filippo Noseda, a partner at law firm Mishcon de Reya, who is acting for the EU national, said the data breach risks involved in the standard “could lead to identity theft on a grand scale”.

Mr Noseda acknowledged that rich clients of law firms would appreciate not having their tax details and activities shared between authorities.

But he added:

“The endgame is not to go back to banking secrecy. We need to find a system that is balanced.”

John Christensen, director of the Tax Justice Network, a campaign group, defended the common reporting standard, saying it needed to be broad to deter individuals from using offshore structures to avoid and evade tax.

“The [standard] has given the tax authorities the information they previously did not have access to, which enables them to pinpoint where tax evasion is happening,” he added.

 

“Tax avoidance and evasion are . . . deliberately and purposefully depriving tax authorities of finances.”

 

HMRC declined to discuss the EU citizen’s case but added:

“HMRC shares some personal data with overseas tax authorities to ensure that the right tax is being paid. HMRC only ever shares information when it’s entirely lawful to do so. This includes complying with applicable GDPR requirements.”

 

Advanced Financial Solutions, Inc. uses a stable and well-accepted financial concept, life insurance, to structure the assets of wealthy international families. Our main tool, PPLI, is a versatile and underutilized form of life insurance that gives excellent structuring results. Please join our list of very satisfied clients by contacting us today about your worldwide assets. We are here to bring you the right kind of change that is disruptive in a positive way.

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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PPLI Changes an Asset’s Location

Moving Mount Everest

One goal of Private Placement Life Insurance (#PPLI) is to change an asset’s location. Can PPLI move Mount Everest? Not literally, but it does an excellent job of moving the assets of wealthy international families. Moving these assets where? Into a PPLI policy that gives these assets tax-deferral, asset protection, and passes them to beneficiaries as a tax-free death benefit.

We share with you Part II of Our Journey Together video that introduces PPLI and presents the six principles of Expanded Worldwide Planning (EWP): privacy, asset protection, succession planning, tax planning, compliance simplifier, and trust substitute.

Depending on the aims of the PPLI structuring, different sets of laws must be adhered to. For families that have a connection to the U.S., the IRS rules related to diversification and investor control must be followed. For clients with no connection to the U.S., these rules do not apply, and we must look to the country of the families’ tax domicile and the domicile of the insurance company for guidance.

This allows, in many cases, for PPLI structuring options not available to those families with a connection to the U.S. We have for you below the provisions of Barbados law that pertain to variable insurance. As you can read, they are simple, straightforward, and have few restrictions as to the assets that can be placed in a PPLI policy.

Many of our PPLI policies are written through companies domiciled in Barbados. Gregory J. Dean and Michael A. Heimos wrote a chapter in International Life Insurance, edited by David D. Whelehan, entitled, “A Jurisdictional Survey of the Asset Protection Merits of International Life Insurance and Annuities.” We quote from the section on Barbados.

“Barbados has sophisticated insurance laws rivaling any in the world, and a mature insurance industry, governed by the Insurance Act, 1996 (referred to in this section as the “Act”).  There are detailed provisions addressing generally defined long term business, group life, “industrial life insurance,” etc. The entirely of Barbadian insurance law is present in public legislation.

On August 17, 2001 the Governor-General of Barbados assented to several pieces of legislation that amend Barbados’ laws governing key aspects of banking, insurance and investment in the island. They are: the Companies (Amendment) Act, 2001-30; the International Business (Miscellaneous Provisions) Act, 2001-29; the Insurance (Amendment) Act, 2001-25; and the Exempt Insurance (Amendment) Act, 2001-27.

The acts allow for structures that are often seen as beneficial, if not necessary, for institutions in the offshore mutual funds, banking and trusts, captive insurance and commercial insurance industries to operate, in Barbados and elsewhere. As pointed out below, there also are aspects of the amendments regarding insurance that apply to the interests of local citizens and residents as well. The new acts are, largely, quite praiseworthy.”

Movable assets can be legally contested, especially in matrimonial disputes. We give you an article later on that is focused on just such a dispute.

Here is the section on Variable Insurance Business of the Barbados insurance code.

CHAPTER 310 INSURANCE

An Act to revise the law regulating the carrying on of insurance business in Barbados in order to strengthen the protection given to policyholders; to increase the capital and solvency requirements of insurance companies; to expand the existing regulatory framework to include the regulating of all insurance intermediaries; and to give effect to matters related thereto.

 

PROVISIONS RELATING TO VARIABLE INSURANCE BUSINESS

(5) The Supervisor may attach such further conditions to the issue of approval under subsection (1) as are relevant to the nature and class of the variable insurance business that the insurer intends to carry on including

(a) requiring the insurer to disclose to any applicant for a policy any one or more of the following:

(i) a statement of the investment policy of any separate account maintained in respect of such variable insurance policy including a description of the investment objectives intended for the separate account and the principal types of investments intended to be made, and any restrictions or limitations on the manner in which the operations of the separate account are intended to be conducted;

(ii) any restrictions or limitations on the manner in which the operations of such variable insurance policy are intended to be conducted;

(iii) a statement of the charges and expenses in respect of such variable insurance policy;

(iv) a summary of the method to be used in valuing assets in respect of which benefits under such variable insurance policy are to be determined; and

(v) illustrations of benefits payable under the variable insurance contract;

(b) requiring that any material contract between an insurer and suppliers of consulting, investment, administrative, sales, marketing, custodial or other services with respect to variable life insurance operations shall be in writing and provide that the supplier of such services shall furnish the Supervisor with any information or reports in connection with the services which the Supervisor may request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with this Act, and any other applicable law or regulation;

(c) requiring the insurer to furnish, in such manner and at such times or intervals as may be prescribed, such information relating to the value of benefits under the policies as may be prescribed, whether by sending notices to the policy-holders or depositing statements with the Supervisor;

(d) requiring that the variable insurance policy be in a specific form or contain such mandatory provisions as may be prescribed in any regulations;

(e) requiring that the insurer maintain reserves in addition to any reserves which the insurer is required to maintain under this Act;

(f) restricting the descriptions of property or indices of value of property by reference to which benefits under the policy will be determined in accordance with the regulations prescribed for such purpose; or

(g) regulating the manner in which and frequency with which property of any description is to be valued, for the purpose of determining the benefits, and the times at which reference is to be made for that purpose to any index of value of property in accordance with the regulations prescribed for such purpose.”

The disputed matrimonial asset that we mentioned earlier is a yacht, Dubai Court Overrules English Possession Order for Superyacht, and comes to us from the Society of Trust & Estate Practitioners (STEP) Industry News publication.

“Tatiana Akhmedova’s English court order against her Russian ex-husband Farkhad Akhmedov, vesting her with possession of his GBP350 million yacht, has been rejected by a Shari’a court in Dubai, where the vessel is currently detained.

The yacht, the MV Luna, is part of the GBP453 million financial remedy awarded granted to Mrs Akhmedova on their divorce in 2015. Ever since, her former husband, an oil tycoon, has been trying to put his assets beyond her reach. According to her lawyers, Withers, he hid assets in a Bermuda trust with the intention of evading his legal obligations to his wife, and launched a counter-claim that they had already divorced in Russia. This claim was only recently dismissed in a Russian court.

In December 2017, Haddon-Cave J in the England and Wales High Court set aside Mr Akhmedov’s dispositions of assets and money into the trust, in an unusual example of a court judgment that pierced the corporate veil. His bank accounts and other assets were frozen under worldwide freezing orders obtained in England, Liechtenstein and the Isle of Man. Haddon-Cave ordered him, and a Liechtenstein Anstalt that he controlled, to vest the yacht in his wife’s name to be sold on her behalf (Akhmedova v Akhmedov, 2018 EWFC 23 Fam).

By this time, Mr Akhmedova had sailed the Luna from its usual home in Turkey to Dubai, hoping to find some recourse through the Dubai legal system. Mrs Akhmedova thus applied to the Dubai International Finance Centre (DIFC) court for a freezing order against both Mr Akhmedov and the Liechtenstein Anstalt, in the hope that the DIFC would issue a court order recognised by the Dubai courts themselves. This order was granted, and later supported by the DIFC Court of Appeal, and Mrs Akhmedova applied to the Dubai courts for a precautionary attachment of Luna. This too was granted, enforcing the boat’s detention in Dubai.

However, Mr Akhmedov then filed a claim in Dubai that his dispute with his ex-wife was a matrimonial rather than one of commercial debt, and so should have been determined by the Dubai courts in accordance with Shari’a law.

In the latest development, the Dubai’s Court of First Instance has dismissed Mrs Akhmedova’s application for possession, and ordered her to pay expenses and legal fees. The vessel, meanwhile, remains in dock at Prince Rashid Harbour in Dubai.

A spokesman for Mrs Akhmedova said the significance and the substance of the Dubai court’s ruling are not yet clear, as all that has been handed down at this stage is the decision. An appeal will be considered once the full judgment together with reasons is available, the spokesperson said.”

PPLI structuring allows us to move an asset, not physically, but into a structure that allows all of the six principles of Expanded Worldwide Planning (EWP)to function. This gives wealthy international families enhanced privacy and tax benefits, and makes them fully compliant with the world’s tax authorities.

We welcome your thoughts and comments on how we can make this happen for you. You can share them at the bottom of this article or you can Contact Us for more information.

 

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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How to Climb the Mountain of Happiness

PPLI Provides Steps Up the Mountain

Private Placement Life Insurance (PPLI) offers a structure that produces tax efficiency, enhanced privacy, and asset protection. In our opening quote, it can be likened to stepping up the mountain. PPLI is not a goal, but a financial structure that gives wealthy international families key elements of financial happiness.

“PPLI functions more like a trust, than a financial product.”

It is appropriate that this quote is from Confucius. For those unfamiliar with Confucius we will have a biographical sketch later on. What is also connected is Part I of a video that re-creates a presentation that I gave at The 4th FOA Family Think Tank Forum in Shanghai, China, which was held on the campus of Fu Dan University.  I was invited to speak by Ann Lee of the Wintel Law Firm in Shanghai.

The presentation is an introduction to Private Placement Life Insurance (PPLI), and the international tax planning concept of Expanded Worldwide Planning (EWP). The two-day conference was attended by attorneys, accountants, financial planners, insurance brokers, and other professionals who work with high net worth clients in China and the Far East.

First, we have a quote about PPLI from Senior Consultant, The Voice of the Investment Management Consultant.

“Private Placement Life Insurance (PPLI) is much more than an insurance policy. PPLI represents one of the most powerful vehicles available to the high net worth investor in the marketplace today.

PPLI enhances both wealth creation and wealth preservation. Wealth creation is the result of the tax-free growth of the assets in the insurance contract. Wealth preservation is a result of the death benefit paid from the insurance contract.”

Much is written about tax transparency. Many of those who champion tax transparency say that it will result in a system that is more equitable and fair. Will it result in greater happiness? The conclusion of this New York Times article, Happy ‘National Jealousy Day’! Finland Bares Its Citizens’ Taxes offers a different perspective.

“Shortly after 6 a.m. on Thursday, people began lining up outside the central office of the Finnish tax administration. It was chilly and dark, but they claimed their places, eager to be the first to tap into a mother lode of data.

Pamplona can boast of the running of the bulls, Rio de Janeiro has Carnival, but Helsinki is alone in observing “National Jealousy Day,” when every Finnish citizen’s taxable income is made public at 8 a.m. sharp.

The annual Nov. 1 data dump is the starting gun for a countrywide game of who’s up and who’s down. Which tousled tech entrepreneur has sold his company? Which Instagram celebrity is, in fact, broke? Which retired executive is weaseling out of his tax liabilities?

Esa Saarinen, a professor of philosophy at Aalto University in Helsinki, described it as “a fairly positive form of gossip.”

Finland is unusual, even among the Nordic states, in turning its release of personal tax data — to comply with government transparency laws — into a public ritual of comparison. Though some complain that the tradition is an invasion of privacy, most say it has helped the country resist the trend toward growing inequality that has crept across of the rest of Europe.

“We’re looking at the gap between normal people and those rich, rich people — is it getting too wide?” said Tuomo Pietilainen, an investigative reporter at Helsingin Sanomat, the country’s largest daily newspaper. …

Roman Schatz, 58, a German-born author, rolled his eyes, a little, at Finland’s annual celebration of its own honesty. “It’s a psychological exercise,” he said. “It creates an illusion of transparency so we all feel good about ourselves: ‘The Americans could never do it. The Germans could never do it. We are honest guys, good guys.’ It’s sort of a Lutheran purgatory.” …

Economists in the United States have shown great interest in salary disclosure in recent years, in part as a way of reducing gender or racial disparities in pay.

Transparency may or may not reduce inequality, but does tend to make people less satisfied, several concluded. A study of faculty members at the University of California, where pay was made accessible online in 2008, found that lower-earning workers, after learning how their pay stacked up, were less happy in their job and more likely to look for a new one.

A study of Norway, which made its tax data easily accessible to anonymous online searches in 2001, reached a similar conclusion: When people could easily learn the incomes of co-workers and neighbors, self-reported happiness began to track more closely with income, with low earners reporting lower happiness. In 2014, Norway banned anonymous searches, and the number of searches dropped dramatically.

“More information may not be something which improves overall well-being,” said Alexandre Mas, one of the authors of the University of California report. …

One of the great sports of National Jealousy Day is to publicly shame tax dodgers.

In 2015, Mr. Pietilainen found that executives from several of Finland’s largest firms had relocated to Portugal so that they could receive their pensions tax free. His reporting caused such a stir that the Finnish Parliament terminated its tax agreement with Portugal, negotiating a new one that closed the loophole.”

Now a little about the extraordinary life of Confucius from the Simple English Wikipedia. We found this section on Confucius suited our article better than the longer Wikipedia article.

“Confucius (born 551 BC, died 478 BC) was an important Chinese educator and philosopher. His original name was Kong Qiu or Zhong Ni. As a child, he was eager to learn about everything, and was very interested in rituals. Once he grew up, he worked as a state official who handled farms and cattle. Then he became a teacher.

Confucius lived in a time when many states were fighting wars in China. This period was called the Spring and Autumn period of the Zhou Dynasty. Confucius did not like this and wanted to bring order back to society.

Like Socrates, Confucius sometimes did not answer philosophical questions himself. Instead he wanted people to think hard about problems and to learn from others, especially from history. Confucius also thought that people should get power because they were good and skilled, and not just because they came from powerful families.

Confucius wanted people to think about other people more than about money or what they owned. However he also felt that there should be strong rules in society and that people needed to obey them. Confucius thought that there were five relationships people could have, and that they all had their own rules. Two people could be

  • Prince and Subject
  • Father and Son
  • Husband and Wife
  • Elder and Child
  • or Friends

These were traditional relationships called the ‘five prototypes’. Confucius said that in all these relationships, both people must obey rules. For example, a subject must obey a prince, but also a prince must listen to a subject and must rule him well and fairly.

Confucius said that people should only do things to other people if they would be okay with other people doing those things to themselves. This is sometimes called the Golden Rule and was also taught by Jesus Christ.

His students wrote down small stories about him, and things that he said. These were put together to make a book called “The Analects.”

At Advanced Financial Solutions, Inc. the mountain that we climb is the creation of unique asset structures for wealthy international families using PPLI. We welcome you to climb this mountain with us, and achieve a structure that can give you financial happiness. Please contact us today.

 

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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#michaelmalloy #michaelmalloysolutions #advancedfinancialsolutions #ppli